Service sector backlogs rise at fastest rate for 16 years

Growth in the service sector slowed in January to the lowest level for seven months, according to a survey.

The Markit/CIPS UK Purchasing Managers’ Index fell back to 58.3, against a baseline of 50 that indicates zero change, making it the third month in succession of slowing growth.

New business growth was also down, to the lowest level for eight months, while capacity came under pressure as backlogs rose at the fastest rate since May 1997.

However, business confidence was at its highest level since March 2010 and some firms linked rising backlogs with capacity shortages and lack of suitable staff. Companies reported recruitment drives and as a result overall employment levels rose for the thirteenth month in a row.

Meanwhile, average prices rose for the eighth successive month, and cost increases were also reported for inputs, wages and utilities.

CIPS group CEO David Noble said: “The surge in demand resulted in backlogs of work escalating at the sharpest rate in over 16 years. As a result, capacity is continually being tested and firms have sought to recruit skilled candidates, with employment levels rising for the thirteenth month in a row.

“At the same time, output price inflation accelerated to its highest in over two-and-a-half years in January, as firms have enough confidence to push their own prices up.”

Chris Williamson, chief economist at Markit, said: “Although the pace of expansion slowed, we must remember that growth was exceptionally strong in previous months, and also that parts of the country saw record rainfall in January.”